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WINNING BUSINESSES IN PRODUCTDEVELOPMENT: THE CRITICAL

SUCCESS FACTORS

A formal new product process isnt enoughyou need a high-quality process,

a clear and visible strategy, enough people and money, and a respectable

R&D budget. How does your program rate on these 10 metrics?

Robert G. Cooper and Elko J. Kleinschmidt

OVERVIEW: 2007 is Research-Technology Manage-ments 50th year of publication. To mark the occasion,each issue reprints one ofRTMs six most frequently ref-erenced articles. The articles were identified by N.Thongpapanl and Jonathan D. Linton in their 2004 study

of technology innovation management journals, a

citation-based study in which RTM ranked third ou25 specialty journals in that field (see RTM , MayJ2004, pp. 56). The benchmarking study reprinted hwas originally published in 1996 and has been updawith its authors reflections. Their study of 161 busin

units uncovered the key drivers of new product perfmance at the business unit level. Ten different perfmance measures were gauged, including percentaof sales by new products, profitability and succrate. The ten gauges were reduced to two key perfmance dimensionsprofitability and impactwhdefined the performance map. Nine possible driverincluding strategy, process, organizational design, aclimate for innovationwere investigated, and four drivers of performance were identified; namely, a hiquality new product process, the new product stratfor the business unit, resource availability, and Rspending levels. Merely having a formal new prodprocess had no impact.

KEY CONCEPTS: product development, new prodperformance, critical success factors, strategy.

What are the critical success factors that underexcellent new product performance? Our benchmarkstudy was designed to uncover the drivers of perfmance by studying business units within corporatioand linking their new product performance to vari

Robert Cooper is professor of marketing at the M.G.DeGroote School of Business, McMaster University,Hamilton, Ontario, Canada, and president of theProduct Development Institute Inc. He is an activeresearcher, author and consultant in the field of productinnovation management, and the developer of the Stage-Gate idea-to-launch process. He has won two MauriceHolland awards for the best paper published in

Research-Technology Managementin 1990 (NewProducts: What Distinguishes the Winners?) and 1994(Debunking the Myths of New Product Development)[email protected]; www.stage-gate.com

Elko Kleinschmidt is professor of marketing at the M.G.DeGroote School of Business, McMaster University, anda prolific researcher and author in the field of manage-ment of new products. He holds a mechanical engineer-ing degree from Hanover (Germany) EngineeringCollege and an M.B.A. and Ph.D. from McGill Univer-sity, Montreal.

Research Technology Managemen

0895-6308/07/$5.00 2007 Industrial Research Institut

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practices. We measured performance in different ways,including profitability, success rates and percentagesales by new products. Some of the business units studiedboasted superb performance; others had a more mediocrenew product track record. By benchmarking against boththe good and the bad, we were able to obtain muchgreater insights into the factors and practices that reallydiscriminate between the top and poorer performers. Inshort, we were able to link specific practices to high per-

formance.The results of this study of 161 businesses are provoca-tive. Here is a sample:

The strongest driver of profitability is the existence ofa high-quality, rigorous new product processone thatemphasizes up-front homework, tough Go/Kill decisionpoints, sharp early product definition, and flexibility. Bycontrast, merely having a formal new product processhas no impact at all on performance!

The role ofnew product strategy in the business unit

whether or not there is one, what it contains and whetherit is clearly communicatedhas a pronounced effect onperformance.

Resourcesboth people and moneyare stronglytied to new product performance. R&D spending per sehad a strong but very focused impact: It drove only someperformance measures, but not profitability.

The use of cross-functional teams helps, but does nothave the dramatic impact on performance that we hadexpected. Rather, the quality of the teams seems to makeall the difference to the business units new product per-

formance.

Before discussing the critical success factors in detail,here is some background to the study: its rationale, itsframework, and what was measured and how.

In Search of the Critical Success Factors

The quest for the drivers of new product success has beena popular research topic for the last decade or so.However, merely studying successful and unsuccessfulnew product projects, as we too have done in the past,

misses many of the key factors in success. Consider this:The typical study, which focuses onspecific new productprojects, compares and contrasts the characteristics ofwinning versus losing projects, and in so doing, uncoversthose factors that discriminate between the two (see, forexample, 1,2).

This success/failure research has uncovered manyfactors that we now take for granted as driving success(see Table 1). But this research does have its limitations.Perhaps the most fundamental flaw is the fact thatresearch done at the project level often fails to identify

those company practices that decide success. Therethree reasons:

1. First, success at the company or business-unit lemay differ from success at the project level. For exama business may have a string ofsuccessful projectsmeasured by return-on-investment of each project; overall, these projects have relatively little impact on firm, and so the businesss total new product efforjudged to be mediocre.

2. Next, often important practicesfor exampcreating an innovative climate and cultureare readily apparent or measurable at the product level. Csequently, they are missed in such success/failstudies.

3. A more subtle and final reason for omissions is the wthe research is designed. When pairs of successes failures are selected from each firm, company characistics that may have a strong impact on success willcommon to both projects. And so these company char

teristics do not emerge in an analysis of factors that dtinguish the successes.

In recent years, benchmarking against other companhas become popular, and has in part overcome somethe deficiencies listed above. But the benchmarkpracticed by most firms also has its problem. First, very time-consuming; second, there is the problemgetting the cooperation of other firms; third, there methodological problems: the fact that those in company doing the benchmarking may not be exp

Table 1.Factors That Drive New Product Success at theProject Level

Strategic Factors:Product advantageMarketing synergyTechnological/Manufacturing synergyAvailability of resourcesStrategy of the new product

Development Process Factors:Proficiency of technological activitiesProficiency of marketing activitiesProficiency of up-front (homework) activitiesTop management supportSpeed to marketProficiency of financial/business analysis

Market Environment Factors:Market potential/sizeMarket competitivenessExternal environment

Organizational Factors:Internal/external relations (of team)How team was organized

Source: Montoya-Weiss and Calantone (2).

MayJune 2007 www.stage-gate.com 2

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enced at such research, are not sure what to measure, talkto the wrong people, interpret the data incorrectly, andso onin short, all the classic errors made by an inexpe-rienced investigator.

Finally, relationships typically are not studied. Bpractices are noted, but the link between practices aimproved performance remains largely speculatiThus, there always remains the concern that an observ

How the Research Was Done

Numerous studies into new product success and failure,together with case studies and popular books, havesuggested myriad factors that ought to drive new product performance. From these, we developed a framework,which identified five major blocks of characteristics formeasurement:

1. Process: the firms new product development processand the specific activities within this process.Processesthat promote a strong market orientation, undertaking themarketing tasks in a quality fashion, doing the pre-development activities well, and having sharp, early product definition, are purported to yield positive

outcomes.2. Organization: the way projects are organized.Investigations conclude that the use of a cross-functionalteam, interfaces between departments, and an empoweredleader yield much better results than a functionally basednew product effort.

3. Strategy: the firm s total new product strategy.Having an explicit new product strategywhich definesthe role and goals of new product development in thecompanys overall strategy, specifies product/marketarenas as areas to focus on, and formalizes the necessaryorganizational structures for implementationresults in

more positive performance.

4. Culture: the firm s internal culture and climate forinnovation.Facets of a positive climate include: encour-aging intrapreneurship; providing support (rewards, risk,tolerance, autonomy, and acceptance of failures without punishment); fostering the submission of new productideas; and providing free time and resources to undertakecreative activities.

5. Commitment: senior managements involvement withand commitment to new product development.Successfactors here include: senior management commitment to

risk-taking; clear messages from senior managementabout the importance of new product development; andavailability of funds and resources for product develop-ment.

Data were collected via a detailed, four-page question-naire. The questionnaire contained 48 measures thatcaptured new product practices (based on the five blocks,outlined above). These 48 measures were gauged via 15Likert-type scales with anchor phrases, and were used todevelop eight main themes or constructs (via addingsubsets of the 48 variables together). Cronbach alphas anditem-total correlations were used to check for internal

consistency of these constructs. R&D spending (% ofsales) and proportion going to new products were also

gauged.

Ten performance merits were measured; eight of thesewere captured on 15 Likert-type scales, again withanchor phrases; two were directly measured as percent-ages (success rates and percentage sales by new products).These ten performance metrics were reduced to twounderlying performance dimensions via factor analysis(SPSSX routine; principal component analysis; varimaxrotation). The drivers of performance were identified bycorrelating the eight constructs (which captured newproduct practices), R&D spending, and the 48 character-istics (mentioned above) versus the two performance

dimensions. Additional characteristics of the company ordivisionsize, R&D spending, location and industrywere also measured. The questionnaire itself was exten-sively pre-tested via personal interviews.

Firms were selected from private lists of companies,compiled from databases and directories of companiesknown to be active in new product development. A total of161 business units from Europe (primarily Germany andDenmark) and North America (U.S. and Canada) partici- pated in this study. Questionnaires were directed tocorporate executives responsible for their business unitsnew product development effort. All respondents had

more than three years involvement here; many had con-siderably more experience. Follow-up personal inter-views were conducted with particularly proficient firms toidentify best practices and provided the anecdotalevidence and examples cited. For more detail, see (3,4).

The average annual sales revenue for the business units(or divisions) was US$562.8 million, with no significantdifferences between North American and European firmsin the sample. R&D spending was 7.5 percent of sales onaverage, with 71.8 percent of this going to product devel-opment. No significant differences emerged betweenNorth American and European firms in terms of these

R&D spending patterns. The industry breakdown was:

Percent

Chemicals/materials 12.6Communication products 11.9Machinery/equipment 33.3Electronics/electrical products 1.5Food 9.6Automotive parts/components 3.0Miscellaneous 8.1Total 100

R.G.C. and E.J.K.

Research Technology Managemenwww.stage-gate.com3

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practice does not really have much impact on perfor-mance.

The current study sought to overcome both sets ofproblems. First, by focusing on the business unit as theunit of analysis, rather than individual new productprojects, we identified a number of company character-istics or practices often missed in traditional research.Second, the research is rigorously designed, employs alarge sample of firms, and utilizes sophisticated data

analysis methods. Finally, the linkbetween practice andperformance is investigated, so that one can concludethat certain practices really do discriminate top perform-ers from the rest.

A total of 161 business units in a variety of industries inthe United States, Germany, Denmark, and Canadaagreed to participate in the benchmarking study. A diag-nostic questionnaire was directed to the senior executivein charge of product development in the business. Thequestionnaire was designed to characterize the busi-nesss new product practices in each of five major areas:process, organization, strategy, culture, and commitment(see How the Research Was Done, previous page).These five areas were measured via 48 metrics, fromwhich nine themes or dimensions of firms practices andcharacteristics were identified (listed in Table 2). Inaddition, ten performance metrics captured how well thebusiness units total new product effort performed.

The Performance Map

Ten key performance metrics were gauged:

Success rate: The proportion of development projectsthat became commercial successes.

Percentage of sales by new products: The percentageof the business units sales accounted for by newproducts introduced within the last three years.

Profitability relative to spending: How profitable business units total new product efforts were, relativthe amount spent on them.

Technical success rating: How successful the toeffort was from a technical/technological perspective

Sales impact: How strong an impact the total n

product effort had on the business units top line or sarevenues.

Profit impact: How strong an impact the effort hadthe business units bottom line or annual profits.

Meeting sales objectives: The extent to which the tnew product effort met the business units sales objtives for new products.

Meeting profit objectives: The extent to which it mthe business units profit objectives.

Profitability versus competitors: How profitable

total new product effort was relative to competitors. Overall success: All things considered, how succeful the business units total new product efforts wwhen compared to competitors.

Overall, our sample of companies fared quite welterms of the performance of their total new prod

Success at thecompany or businesslevel may differ from

success at theproject level.

Table 2.The Impact of Nine Drivers of New Product Performance at the Business Unit Level

Performance Driver

Effect on

Profitability*

Effect on

Impact*

A high-quality new product process .416 .226A defined new product strategy for the business unit .228 .211Adequate resourcespeople and moneyfor new products .244 .197R&D spending on new products (as % of the businesss sales) ns .395High-quality new product development teams .196 .208Senior management commitment to new products .268 nsAn innovative climate and culture in the business unit .243 nsThe use of cross-functional teams for product development .230 nsSenior management accountability for new product results .228 ns

*Numbers are correlation coefficients between specific drivers and two performance dimensions. All significant at the 0.01 level. Bold numbers andarrows denote strong correlations, significant at the 0.001 level.


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efforts when gauged on these ten metrics. New productsintroduced in the previous three years represented 28.4percent of annual sales, on average; 56.9 percent ofprojects that entered development were eventuallylaunched as commercial successes; and on the eightscaled performance metrics, companies scored aboutmid-scale, on average.

A Performance Map was constructed based on these tenperformance metrics. A review of performance madeclear that the ten metrics were strongly connected to oneanother. Therefore, factor analysis was used to identifythe underlying dimensions of performance and todevelop a Performance Map (SPSSX routine, principalcomponent analysis, varimax rotation; two factors wereselected based on both the Scree test and eigenvalues >1.0). Two performance dimensions emerged:

1. Profitability.This was the strongest dimension, andcaptured how profitable the businessess total newproduct efforts were. It comprised: the profitability

versus competitors and overall success rating of the bnesss total new product effort; whether the total initive met product objectives; its profitability relativespending; and the impact of the total effort on business units profits.

2. Impact.This performance dimension, also a stroone, had less to do with profitability and more with impact that the total new product efforts had on business. It comprised: percentage sales by new produachieved by the business unit; the impact of nproducts on both sales and profits of the unit; the succrate achieved; and the technical success rating.

The two dimensions can be used to capture the n product performance of business units in a macrobroad way; that is, new product performance measurevarious ways boils down to two fundamental or undeing dimensions, namely profitability and impact on business. These two dimensions thus become the vertand horizontal axes of the Performance Map in Figur

Figure 1.The Performance Map is based on the 10 performance metrics. The arrows

show how each metric loads on the two map dimensions, Impact and Profitability.


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Here we also show the ten performance metrics,revealing visually how each metric loads on each perfor-mance dimension (the correlations between each perfor-mance metric and the two performance dimensions).

Four Key Success Factors

What then are the critical success factors in productdevelopmentthe factors that drive performance at thebusiness unit level? The study uncovered nine factorsthat distinguished the better performing businesses, fourfactors in a very strong way. The top four are:

1. A high-quality new product process.One thatdemanded up-front homework, sharp and early productdefinition, tough Go/Kill decision points, and quality ofexecution and thoroughness, yet provided flexibility.

2.A defined new product strategy for the business unit.One in which: There were new product goals for thebusiness unit; areas of focus were delineated, the role ofnew products was clearly communicated, and there was a

longer-term thrust.

3. Adequate resources of people and money.Wheresenior management had provided the needed people (andfreed up their time for projects), and resourced the effortwith adequate R&D funding.

4.R&D spendingfor new product development (as a per-centage of sales).

The other success factors, with a more modest effect onperformance, included:

5. High-quality new product project teams.

6. Senior management committed to, and involved in,new products.

7. An innovative climate and culture.

8. The use of cross-functional project teams.

9. Senior management accountability for new productresults.

Table 2 summarizes the effects of these nine drivers (thecorrelations between the success factors and the perfor-mance dimensions), while Figure 2 shows the Perfor-mance Map, but this time indicating the direct linksbetween performance and business practices. Considernow the top four success factors in more detail:

1. A high-quality new product process.This wasthe strongest common denominator among high-performance businesses (see Table 2 and Figure 2). Herethe term new product process means those steps,activities and decision-points that new product projectsfollow from idea to launch and beyond.

A word of caution here: The mere existence of a formproduct development process had absolutely no effec performance; there was no correlation at all betwmerely having a process and performance results.those companies that mistakenly believe they canthrough the motions and re-engineer their new prodprocesses (usually amounting to documenting what tare already doing!) are in for a big disappointmeHaving a process did not seem to matter; rather it wasquality and nature of that process building in bpracticesthat really drove performance.

Here are the six ingredients we measured to gauge quality of the process, and when considered together,up to a quality process and positive performance. also use the anecdotal evidence from the study to shhow some firms were particularly proficient in termthese six ingredients:

First, there was an emphasis on up-front homeworboth market and technical assessmentsbefore projemoved into the development phase.

Too many projects move from the idea stage right idevelopment with little or no assessment. The resultthis ready, fire, aim approach are usually disastroInadequate up-front homework has been found to bmajor cause of failure in product development. In best new product processes we saw, management deliberately built in one or two homework stages befthe go-to-development decision point, comprisvital must do actions. For example, in the five-stprocess employed by the Professional Division of Johnsons Wax, the two homework stages entail:

A high-quality newproduct process

was the

strongest commondenominator amonghigh-performance

businesses.


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Preliminary market assessment: A preliminary andquick assessment of the market potential, need level, andcustomer requirements, done very early in the project.

Preliminary technical assessment: A parallel activityto identify the technical possibilities and risks.

Detailed market studies: User needs-and-wantsstudies (to pin down exact customer needs, requirementsand benefits sought), competitive analysis, and concepttesting (to ascertain probable purchase intent).

Detailed technical assessment: Determination of theprobable technical route, risks, patent position, manufac-turability, costs and capital requirements, timing andresources required.

Financial and business analysis: Based on the abactions, a profitability analysis (a discounted cash flwith sensitivity analysis) and the business rationalemoving ahead with the project.

The result of these homework actions at SCJ ibusiness casea mandatory element prior to movthe project into the development stage.

The process included sharp, early product definitibefore development work began.

Failure to define the productits target market; concept, benefits and positioning; and its requiremefeatures and specs before development begins major cause of both new product failure and serio

Figure 2.How the critical success factors drive new product performance, as gauged

by correlations of nine drivers with the two performance dimensions.


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delays in the development cycle. Some companies, suchas Hewlett-Packard, have placed major emphasis in theirPhase-Review Process on getting the product definitionpinned down before a formal development project isapproved. This definition, of course, is based on facts,rather than hearsay and speculation; hence the need for asolid up-front homework phase.

There were tough Go/Kill decision points in theprocess, where projects really did get killed.

Projects tend to take on a life of their own! In too manycompanies we investigated, projects moved too far intodevelopment without serious scrutiny. And it was only asthe project approached commercialization that the hardtruths were recognized: The market was not quite as largeas expected, or manufacturing costs were higher thananticipated, and so on. The lack of tough Go/Killdecision points meant too many product failures,resources wasted on the wrong projects, and a lack offocus. The result was too many marginal projects in thepipeline, while the truly meritorious projects werestarved.

In the better processes we observed, companies haddesigned a funnelling or culling process in the form oftough review points or gates. For example, in Rohm &Haass WIN process, there are five gates, where seniormanagement reviews the deliverables, evaluates theproject against pre-set criteria, and approves the actionplan and resources for the next stage. The decisionprocess is timely and efficient, and ensures that poorprojects are weeded out before excessive spending

occurs. There was a focus on quality of execution, in whichproject activities were carried out in a quality fashion.

An emphasis on quality-of-execution in many firmscame about after internal studies revealed that too manyprojects suffered from weak, inconsistent work, some ofthe most deficient areas being the market-related ones.Top-performing firms work at improving quality ofexecution of key tasks and activities throughout theprocess, from idea generation right through to launch.

Some companies, such as ECC in Atlanta (the worldsmajor producer of clay) have re-engineered their productdevelopment processes in order to achieve quality-of-execution improvements. By specifying the key deliver-ables at each gate or decision point, and by conducting athorough review at the gate, (where the quality of workdone in the previous stage or phase is rigorously scruti-nized), the quality of work has significantly improved.Project teams and leaders know what rigor is expected ofthem, and hence set their own quality or action standardshigher.

The new process was complete or thorough; evneeded activity was carried out, with no hasty corncutting.

Many companies had discovered that not only was quality of work lacking, but in some cases, the work wlacking altogether. That is, key tasks, such as maranalysis, business assessment, and customer researwere simply not done (or left until far too late in process). This deficiency caused some companie

redesign their processes, building in these tasks at appropriate point in the process.

In ECCs process, deliverables have been definepriori for each decision-point or gate review; these deerables specify what is required at a given point in project, and hence determine what work or tasks musundertaken within a given stage.

The new product process was flexible; stages adecision points could be skipped or combined,dictated by the nature and risk of the project.

One pitfall some firms encounter when theyre-engineer their product development process is failure to build in flexibility. Instead of being a tempor roadmap, the formal process becomes a straigjacket beset with bureaucracy. By contrast, compansuch as Procter & Gamble specify in their new prod process that flexibility is key, that certain steps activities can be omitted, and that the beginnings aends of succeeding phases overlappedprovided thatunderstand the risks involved and have agreed at previous decision checkpoint (5).

Failure to define theproduct before

development begins

is a major cause ofboth new productfailure and serious

delays in thedevelopment cycle.


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A high-quality new product process clearly pays off.Companies that boasted proficient new productprocessesones that incorporated the six ingredientslisted abovewere rewarded with superior perfor-mance: higher profitability and higher impact efforts.Once again, note that merely having a formal process had

no impact; it was the quality of that process that madedifference!

2.A defined new product strategy for the business uniHaving a clear and visible new product strategy was No. 2 driver of businessess new product performan

Winning Businesses in ProductDevelopment: The Critical SuccessFactorsRevisited

Why do some businesses make product innovation seemso easya steady stream of new product winners? Our1996 article reported the results of our first major bench-marking study that investigated new product development(NPD) performance results and how top-performing firmsachieved positive results.

A number of best-practice themes emerged from that 1996

study, and they are as relevant today as then (since then,we have undertaken other benchmarking studies in orderto refine our insights into what leads to success in productinnovation, also reported in RTM, 1). The outcome ofthese studies is the performance diamond, next page,which summarizes the four major performance drivers of

NPD results (2):

1. StrategicTop performers possess a product innova-tion strategy, driven by the leadership team and itsstrategic vision for the business. Notably, even today,about half of businesses lack key facets of this strategy!

This innovation strategy consists of a number of elements,including the businesss goals for product innovation (forexample, 3Ms goal of percentage of sales from new

products has been adopted by many firms) and how thebusinesss new product effort ties into its overall businessgoals. Arenas of strategic focuswhere the business willfocus its R&D effortsare also a part of the innovationstrategy, along with how the business plans to win in eacharea.

Attack plans include strategic stance, entry strategy andalliance strategy (for example, P&Gs strategy ofconnect and develop or working with partners to

develop new products outside the corporation). And theinnovation strategy includes the product and technologyroadmaps which spell out the major development initia-tives (for example, HP maps out its major developmentsover a five-to-seven-year time horizon).

2. Portfolio management and resource allocationAsecond common denominator of top-performing busi-nesses is making sure that the business has the necessaryresources available for NPD, both funds and peoplefrom all functional areas. But deep pockets is not the onlydriver of high performance; rather, astute investment ofthese resources is key too: top performers have a portfolio

management system that helps the leadership teamallocate these resources to the right areas and right

projectsthe right mix and balance of NPD investments,and a strategically aligned portfolio.

Strategic buckets is a method designed to allocateresources to the right strategic arenas and to achieve theright balance of projects (3). Note, for example, that best-

performing businesses have a different breakdown in thetypes of NPD projects, with a much higher proportionof bolder, larger and riskier ventures than do poor per-formers (4).

Top-performing firms also maximize the productivity oftheir R&D spending: they ensure that funds and people arefocused on high-value projects. The best firms rely onseveral powerful methodsscorecards, the productivityindex, and real optionsto select and prioritize their new

product projects (5).

3. The NPD ProcessMost firms have implemented agating or Stage-Gate idea-to-launch new product

process (6). But there is great variability amongcompanies in how well the process works. The top per-formers have a well-crafted, robust new product processin place, one that drives NPD projects from idea to launch

and beyond; their process emphasizes up-fronthomework, voice-of-customer input, quality of execution,and performance results metrics.

Top performers embrace their NPD process and practicediscipline in its implementation; they have also stream-lined the process in the last ten years, making it flexible,adaptive and scalable (for example, there are Lite andXPress versions of Stage-Gate for lower-risk projects).Finally, they have built lean principles into their NPD

process (7).

4. People: culture, climate, teams, and the role of seniormanagementA fourth dimension was later added to the

1996 studys results to yield the performance diamonddepicted on the following page. This fourth dimensionis about people. In top-performing businesses, there isa positive climate and culture for innovation; the leader-ship team of the business actively supports innova-tion with words, actions and resource commitments,and senior management is engaged in the decision-making process in the right way. Additionally top-

performing businesses embrace a true team approachto NPD: they field effective, properly-resourcedcross-functional teams that are accountable for the endresult.


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Strategy was linked to both performance dimensions (seeFigure 2 and Table 2).

Here are the four main ingredients of a positive newproduct strategy, which when taken together, add up topositive performance:

There are goals or objectives for the businesss tonew product effort (e.g., what sales, profits, etc. the n

products will contribute to the business).

What surprised us was how many businesses lackdefined, clear and written goals for their total ne

The diamond had its seeds in our 1996 RTM article,reprinted here, and captures the key success drivers in

product innovation. Use it as a compass or guide tomanaging your innovation effort; for example, Procter &Gamble is one leading firm that has adopted thisdiamondthey call it the Initiatives Diamondand ithas proved to be a powerful guide to product innovationthere (8).R.G.C. and E.J.K., May 2007.

Notes and References

1. Subsequent benchmarking studies are reported in the three-part RTM series: R. G.Cooper, Edgett, S. J., and Kleinschmidt E. J. Benchmarking Best NPD

PracticesParts I, II and III. Research-Technology Management, 47, 1, Jan.Feb. 2004,pp. 3143; also: 47, 3, MayJune 2004, pp. 5060; and 47, 6, Jan.Feb. 2005, pp. 4355.

2. More on the performance diamond in R. G. Cooper. Product Leadership: Pathwaysto Profitable Innovation, 2nd edition. New York, NY: Perseus Publishing, 2005.www.stage-gate.com

3. For more on strategic buckets see the two-part RTM series: R. G. Cooper, Edgett,S. J. and Kleinschmidt E. J. Portfolio management in new product development:lessons from the leadersParts I & II. Research-Technology Management 40, 5,Sept.Oct. 1997, pp. 1628; and: 40, 6, Nov.Dec. 1997, pp. 4352.

4. Cooper, R. G. Your NPD portfolio may be harmful to your businesss health. PDMAVisions, XXIX, 2, April 2005, pp. 2226

5. For project selection methods, see: R. G. Cooper and S. J. Edgett. 10 ways to makebetter portfolio and project selection decisions. Visions Magazine (PDMA), XXX, 3,June 2006, pp. 1115.

6. Stage-Gate is a registered trademark of the Product Development Institute Inc.

7. R. G. Cooper and S. J. Edgett. Lean, Rapid and Profitable New ProductDevelopment. Product Development Institute, www.stage-gate.com 2005.

8. The P&G Initiatives Diamond and how it is used to achieve superior NPD results isreported in R. G. Cooper and M. Mills, Succeeding at new products the P&G way: A

key element is using the Innovation Diamond. PDMA Visions, XXIX, 4, October2005, pp. 913.

The Performance Diamond depicts the four main drivers of positive NPD performance.

Use it to guide your NPD efforts. (Stage-Gate is a trademark of Product Development Institute Inc.)


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product effort. And the lack of this rather basic ingredientof strategy had negative consequences for the business.By contrast, leading firms, such as 3M, make newproduct goals such as 30 percent of our divisions saleswill come from new products introduced over the nextthree years an explicit part of every divisions businessgoals. Other commonly cited goals, besides percentageof sales, are dollar sales to be generated from newproducts; percentage of profits; and numbers of

major and minor launches per year.

The role of new products in achieving business goals isclearly communicated to all.

The reason for having goals is that everyone involved innew products can have a common purposesomethingto work toward. Far too often, the people who worked onnew product projects were not aware of their businesssnew product objectives, or the role that new productsplayed in the total business objectives. The message isthis: Do what 3M does. Set goals for the new producteffort (e.g., percentage of sales, profit or growth over the

next X years), and make them clear to everyone involved. There are clearly defined areas of strategic focusstrategic arenasto give direction to the businesss totalnew product effort.

The new product strategy specifies the arenas where wewill play the game, or perhaps more important, wherewe wont play . . . what is in bounds andout of bounds.These arenas were often defined in terms of the types ofproducts, markets or technologies the business unitwould focus on. With arenas undefined, the search forspecific new product ideas or opportunities is unfocused;

over time, the portfolio of new product projects is likelyto contain a lot of unrelated projects, in many differentmarkets, technologies or product-typesa shotguneffort.

The business s new product effort has a long-termthrust and focus, including some longer-term projects(as opposed to short-term, incremental projects).

The short time horizon of firms has been a criticismwidely voiced. Importantly, this one ingredient was themost important of the four strategy ingredients, and sig-nificantly linked to a number of specific performance

metrics.A sound new product strategy lies at the heart of a busi-nesss new product effort. Those businesses that lackedgoals for their total new product effortswhere arenasor areas of strategic thrust had not been defined, wherethe strategy and projects were short-term in nature, andwhere the strategy was not well-communicatedwere ata decided disadvantage on both performance dimen-sions.

Corning Incorporated, for example, has heeded themessage. The company is installing a first-rate portfolio

management approach to help allocate resources to right projects within business units. The approach doesuperb job of linking the project portfolio to strategy,begins first with a clear delineation of the business unstrategy: its goals for new products, and the arenasstrategic focus.

3. Adequate resources of people and money.T performing firms had in place the needed resourceundertake new products; that is, senior management h

made the necessary resource commitment, and kepThis was the No. 3 driver of superior performanResource commitment drove both the profitability ofbusinesss total new product effort, as well as the impof this effort on the business (see Figure 2 and Table

Three main ingredients lead to resource adequacy andturn, positive performance for the business:

The necessary resources have been devoted by senmanagement to achieve the firm s new product objtives.

In an effort to overcome weak new product performansome managements had undertaken a re-engineeringstrategic planning exercise. The problem was that resulting strategy, goals or processes were not backedwith the needed resources. And so the initiative flodered. As one manager eloquently stated, Even the bgame plan in the world comes to nothing if there areplayers on the field!

A lack of resources continues to plague new prod projects, and was often the culprit underlying pquality of execution; there simply werent the necesspeople in place, nor the time available to do a quality jThe result was that corners were cut, activities were din haste, tasks were left outand the results were pdictable. The point is: For positive results, the resoucommitment must be aligned with the businesss n

product objectives and processes.

R&D budgets are adequate to achieve the staobjectives.

This is just another facet of the resource question, with a specific focus on technical budgets. Later, we lspecifically at R&D spending as a percentage of saand its effect on new product performance.

The necessary people are in place, and release timgiven for specific new product projects.

Projects are approved, and people are assigned to thToo often, the assigned people are expected to workanother six projects, or in the case of marketing amanufacturing people, to do their real job in additiothe new product project. Some enlightened firmhowever, are taking steps to overcome this deficiencyAlcoas Knoxville packaging division, for exampwhen a projects action plan is approved at each g


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review, the plan spells out resource commitments,people and their time allocation. Assignments ofpersonnel to specific projects are made realistically, andin full awareness of their other duties and obligations.

Having a solid new product process (critical successfactor No. 1) is only part of the answer. So too is havingan enunciated new product strategy (factor No. 2).Unless the process and the strategy are properlyresourced with people, time and moneyand the com-

mitments keptdont expect stellar performance.4.R&D spending.R&D spending for product develop-ment, measured as a percentage of sales, was by far thestrongest determinant of the impactof the product devel-opment effort (see Table 2 and the horizontal dimensionin Figure 2). But R&D spending hadno significant effectwhatsoever on the other performance dimension;namely, profitability of the total new product effort.Thus, metrics that capture performance magnitude orimpact, such as the popular, percentage of sales by newproducts measure are driven by the magnitude of

spending.The message is clear: If your performance goal is to havea high-impact new product effortfor example, toachieve a high percentage of your business units salesfrom new productsthen increased R&D spending isthe most obvious lever to pull. The relationship is notone-to-one, but it is strong!

Five Other Success Factors

Another five drivers of new product performance werealso identified (see Figure 2), but their impacts weremore modest than the four critical success factors high-lighted above.

5. High-quality new product teams.The various orga-nizational and team measures contained two distinctfactors. The first captures the quality of the team, whichwas a fairly strong driver of performance; the second(No. 8, next page), whether it was a true cross-functionalteam or not, played a lesser role. The first of these, ahigh-quality team, meant:

The team leaderwas dedicated to this one project(asopposed to trying to lead many projects, or having many

other assignments). Sadly, in too many business units westudied, team leaders were spread too thinly across toomany projects or had too many other duties to runprojects effectively.

The team interacted and communicated well and often,withfrequent project update meetings,progress reviews,and problem resolution sessions. The best teams wewitnessed had short but weekly meetings to ensure thatthe entire team was up to speed.

Decisions made by outsider groups or people (outsidethe team) were handled quickly and efficiently. This

was usually the result of proficient team actioFor example, the team was able to do whatever innal marketing, communication and persuasion wnecessary to get outsiders on-board and to deliver quefficient decisions.

Firms that boasted good-quality project teams, as defi

above, had positive results on both performance dimsions (see Table 2 and Figure 2).

6. Senior management commitment.Businesses wgreater senior management commitment to, and involment in, new products boasted more profitable total nproduct efforts. Firms where senior managements wvery much involved in new products were ones in wh

Senior management was strongly committed to nproducts and product development.

Management had committed the necessary resourto achieve the firms new product goals.

Senior management was closely involved in project Go/Kill and new product spending decisionthey had a central role in the new product project reviprocess.

7. Innovative climate and culture.The climate innovation within the firm was a success factor, perhaps not as strong as one might have expected. Sadthe average scores on individual ingredients here wamong the lowest of any success factors. Here, positclimates were ones in which:

There was a new product idea scheme within business unit, which solicited ideas from all employe

Technical people were given free time, scouting tor time off to work on projects of their own choiTypically this was between 10 and 20 percent of the wweek. Here we saw some evidence that, while some firmade this option available to their technical employerelatively few employees took advantage of the offer

Resources were made available to employees so tthey could informally advance their own projectsundertake creative work of their own choice. Su

Companies such asProcter & Gamble

specify in their new

product process thatflexibility is key.


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resources often included seed money for technicalresearch, bootstrapping accounts to fund unapprovedprojects, etc.

Skunk works or teams working on unofficial projectswere encouraged.

8. Cross-functional team.This second facet of theproject team captured whether or not it was a true cross-functional team. Here, positive performance was

achieved when: All projects had a defined and accountable teamleadera person who was responsible for advancing theproject.

Project leaders were responsible for the project frombeginning to end (as opposed to being responsible for

only one phase of a project, or having project leaderschanging hands many times during a projects life).

All projects had an assigned team of players, wworked on specific projects.

These assigned players, who executed projects, wecross-functional teamfrom R&D, Marketing, Mafacturing, Engineering, etc.

Businesses that consistently used cross-functional tea

were rewarded: the total new product effort was m profitable on average. But the mere use of crofunctional teams did not have the dramatic impactprofitability or impact that we had expected; rather, tequality (No. 5 above) had the stronger effect.

9. Senior management accountability.This final drhad the least effect overall on performance, but it did hto drive the profitability that the business unit achiefrom new products. Management accountability captuthe degree to which new product performance wmeasured, and senior management was held accounta

for the program results. Scores were very low oningredients of management accountability. Consieach ingredient in greater detail:

New product performance was a part of senior magements personal performance objectives.

Senior managements compensation or bonus schewas tied to the business units new product performanVery few businesses employed this practice.

The performance results of the new product progrwere actually measured(e.g., percentage of annual sagenerated by new products, or success, fail and k

rates). Surprisingly, this practice was rarefirms simfailed to keep score!

The evidence suggests that not only is the business unnew product performance not a factor in senior manaments compensation scheme, or even an integral facesenior managements annual performance objectivbut such new product performance results are likelyeven measuredat all for a great many firms.

Conclusions

1. New product performance at the business-unit le

can be reduced to two major underlying dimensionprofitability and impact on the business. This reductgreatly simplifies the measurement and reporting of pformance. Note that there exist many measures of n product performance percentage of sales, succrates, meeting sales and profit objectives, varimeasures of profitability, and even technical succratings. We used ten of these many performance metrin the current study. One problem with multimeasures is that the performance issue becomcloudedit is more complex and more confusing.

The Cornerstones of New Product Performance

1. A high-quality new product process, meaning:

An emphasis on up-front homework both marketand technical assessmentsbefore projects move intothe development phase.

Sharp, early product definition, before developmentwork begins.

Tough Go/Kill decision points in the process, whereprojects really do get killed.

A focus on quality of execution, where activities innew product projects are carried out in a qualityfashion.

A complete and thorough process, where everyneeded activity is carried out without hasty corner-cutting.

A flexible process, where stages and decision pointscan be skipped or combined, as dictated by the natureand risk of the project.

2. A clearly defined new product strategy for thebusiness unit, which means:

There are goals or objectives for the businesss totalnew product effort (e.g., what sales, profits, etc. new

products would contribute to the business).

The role of new products in achieving business goalsis clearly communicated to all.

There are clearly defined areas of strategic focusstrategic arenasto give direction to the businessstotal new product effort.

3. Adequate new product resources, meaning:

Committing the necessary people.

Allowing them sufficient time.

Providing an adequate R&D budget.


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The current study provided needed clarification here.The many measures of performance used really boildown to two major dimensions, according to our statis-tical analysis results:

How profitable the businessess total new productefforts are, including: the profitability versus competi-tors and the overall success rating of the businesss totalnew product effort; whether the total initiative meetsprofit objectives; its profitability relative to spending;

and the impact of the total effort on the business unitsprofits.

The impact of the total new product effort on thebusiness, including: percentage sales by new productsachieved by the business unit; impact of new products onboth sales and profits of the unit; success rate achieved;and the technical success rating.

Thus, when speaking ofthe performance of a businesssnew product efforts, our research suggests that it makessense to simplify the discussion and focus on two broad

performance areas: profitability andimpact. (One couldeven reduce new product performance to two perfor-mance indices consisting of a number of metrics; theweights or loadings shown in Figure 2 enable the com-putation of these two indices). The Performance Mapshown in Figure 1 proved to be a most useful visual toolto capture these two dimensions and the multiple metricsthat comprise them. Indeed, it makes sense to plot indi-vidual business units within a corporation on this X-Ymap, in order to display pictorially the high-impactand/or the high-profitability business units.

2. The three cornerstones of new product performance

the factors that really drive performanceare:

A high-quality new product process.

A clearly defined new product strategy for thebusiness unit.

Adequate new product resourcespeople and money.

These three together had by far the strongest effect onboth measures of the businesss new product perfor-mance. Merely having a formal new product process in

place had no effect on performance. Rather, it was thenature of the processa high-quality process which builtin the ingredients listed in The Cornerstones of NewProduct Performance (below)that made the difference.

The message is clear. Technology or new productstrategy must be firmly linked to business strategy. Thismeans that management must develop a new productstrategy for the businessa product innovation charter(6)that ties new products closely to the achievement ofbusiness goals, has clearly stated objectives, and definesareas of strategic focus or thrust.

The third cornerstone of performanceadequate n

product resources

is sometimes overlooked in thdays of right-sizing and re-engineering. Managemmust realize that developing a grandiose strategyhiring consultants to re-engineer the new prodprocess, will not yield results if there are no or too fplayers on the field. The goal of a high-performance n product effort and a high-quality new product procwill not be achieved unless the resources are in plaManagement must make the commitment here, and kit!

3. The R&D spending devoted to new products was single strongest driver of program impact. This comeno surprise, but it is reassuring to see the relationsverified and quantified. If the business units goal high-impact new product effortone that yields a h percentage of sales by new products, and has a laimpact on the businesss sales and profitsthincreased new product R&D spending is one route. another way, dont expect to have a high-impact efformanagement is not prepared to commit the R&D dolas a percentage of sales. Note that the mean R&spending for the business units studied was already retively high at 7.5 percent of sales. There are caveats h

however: There was no relationship at all between R&spending and the profitability of the new product eff

The link between R&D spending and impact was one-to-one (the correlation was strong at 0.395, butless than 1.00).

4. Other factors did enter the performance equation, these factors have far less effect than the three cornstones of performance highlighted above. These lesfactors are:

R&D spending forproduct development

was by far

the strongestdeterminant of theimpactof the productdevelopment effort.


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High-quality new product teams: Dedicated teamleaders, full-time on their one project; good internal teamcommunications; and the ability to manage the externaldecision-making process.

Senior management commitment: Senior managersstrongly committed to new products; commitment of thenecessary resources; and senior management closelyinvolved in Go/Kill and spending decisions.

Innovative climate and culture: A new product ideasubmission scheme; free time or scouting time availablefor technical employees; resources available for creative,unapproved projects; and skunk works on unofficialprojects. Note that most firms were particularly weak onthis factor.

Cross-functional teams: A defined and accountableleader who was accountable from beginning to end of theproject, and an assigned team of players from variousfunctions in the business.

Senior management accountability: New product per-formance results were measured; new product perfor-mance was a part of senior managements performanceobjectives; and senior managements compensation orbonuses were tied to new product results. Businessesfared very poorly on these three accountability practices.

5. Beware naive process re-engineering! Recall thatsimply having a formal new product processone thatmaps out the steps in a product development from ideato launchdoes not lead to positive performance,according to our studys results. Many firms are

currently busy documenting their product innovationprocesses, simply to meet ISO standards; the end result isa formal process but likely no increase in perfor-mance! If you naively reengineer your innovationprocessthat is, simply document what you are nowdoingdont expect positive results. Rather, considerthe success factors of a high-quality innovationprocessthose factors listed in conclusion 2 aboveand build these into your new product process. Manyfirms have utilized the stage-gate model as a basis forredesigning their new product process (7); the stage-gateapproach emphasizes many of the ingredients listedabove: homework, voice of the customer, tough gates,quality of execution; and flexibility. Some progressivefirms have even moved beyond this into third-generationnew product processes (8).

6. Benchmark before re-engineering. The beginning solution is understanding the problem. Before yembark on a re-engineering solution, take time benchmark your business units performance a practices against other firms. The ten performametrics and the 48 measures of practices used in research are a good starting point (i.e., become logical variables or measures to use in such a benchmaing exercise).

In subsequent work, we have extended our analysis developed our ProBE (for Product Benchmarking Evaluation) benchmarking tool, which enables youcompare your new product performance and practiagainst the many business units in our databaseyou cannot afford extensive benchmarking, thenminimum, perform a diagnostic on your own businunit; that is, rate your own performance and practicesthe ten metrics and 48 measures of new product practiwe have used.

In sum, new product development, more than ever, is t

to corporate fortunes and prosperity. An understandof the factors that drive new product performance atbusiness unit level is critical if we are to achieve the gof increased performance. By identifying these drivfactorsin particular, a high-quality innovation proca defined innovation strategy, and adequate resourcesupport both strategy and processthis benchmarkstudy has provided hard and quantified evidence management to take the steps toward winning at nproducts.

References1. Cooper, R. G. Debunking the Myths of New Product Develment.Research Technology Management37, 4 (JulyAugust 194050.2. Montoya-Weiss, M. M. and R. J. Calantone. DeterminantNew Product Performance: a Review and Meta Analysis. JournaProduct Innovation Management11, 5 (Nov. 1994: 397417.3. Cooper, R. G. and E. J. Kleinschmidt. Benchmarking the FirCritical Success Factors in New Product Development. JournaProduct Innovation Management12, 5 (Nov. 1995): 374391.4. Cooper, R. G. and E. J. Kleinschmidt. Benchmarking FirNew Product Performance and Practices. Engineering ManagemReview 23, 3 (Fall 1995): 112120.5. Product Launch Road Map for Success. Procter & Gamble. Ccinnati: P&G internal document (July 1993).

6. Crawford, C. M.

Defining the Charter for Product InnovatioSloan Management Review (1980): 312.7. Cooper, R. G. Winning at NewProducts: Accelerating the Procfrom Idea to Launch. Reading, Mass: Addison-Wesley, 1993.8. Cooper, R. G., Third-generation New Product ProcesseJournal of Product Innovation Management11, 1 (Jan. 1994): 3

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Worlds Top Innovation Management Scholars-Journal of Product Innovation Managem ent, May 2007

Dr. Scott J. Edgett is internationally recognized as one of the worlds top ex-perts in product innovation and is the pioneer of portfolio management for prod-uct innovation. He is a high profile speaker and sought-after consultant. Dr.Edgett has had extensive experience working with large multinational clients in avariety of industries, principally focusing on issues affecting innovation leader-ship and capability. He is credited with helping business executives and innova-tion professionals successfully implement world-class innovation processes thathave generated outstanding results. His speaking engagements and consultingwork have taken him around the globe to work with some of the worlds bestinnovators and companies among the Fortune 1000.

Dr. Edgett is Chief Executive Officer and co-founder, with Dr. Robert G. Cooper,

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Inc. He has spent morethan 20 years researching and developing innovation best practices and workingwith organizations in product innovation. He is a prolific author having co-authored six books including the popular Portfolio Management for New Prod-ucts, 2nd Edition and has published more than 60 academic articles. Dr. Edgettis a former Professor of the Michael G. DeGroote School of Business, McMasterUniversity in Ontario and is a Faculty Scholar at the Institute for the Study ofBusiness Markets (ISBM) at Penn State University.

Dr. Robert G. Cooper

Dr. Scott J . Edgett

Dr. Robert G. Cooper is one of the most influential innovation thought leaders inthe business world today. He pioneered the original research that led to manyground-breaking discoveries including the Stage-Gate Idea-to-Launch process.Now implemented by almost 80% of North American companies, it is consideredto be one of the most important discoveries in the field of innovationmanagement. He has spent more than 30 years studying the practices and pitfallsof 3,000+ new product projects in thousands of companies and has assembled theworlds most comprehensive research on the topic. His presentations and practicalconsulting advice have been widely applauded by corporate and business eventaudiences throughout the world making him one of the most sought-afterspeakers.

A prolific author, he has published more than 90 academic articles and sevenbooks, including the best selling Winning at New Products, 3rd Edition. He is therecipient of numerous prestigious awards including the Crawford Fellow from theProduct Development and Management Association (PDMA) and the Maurice Hol-land Award from the Industrial Research Institute (IRI). Dr. Cooper is a Professorof Marketing and Technology Management at the Michael G. DeGroote School ofBusiness at McMaster University in Ontario, Canada and Distinguished Fellow atthe Institute for the Study of Business Markets (ISBM) at Penn State University inPennsylvania, USA.

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